2025 (1) TMI 1112 - AT - Income Tax

Assessment reopening under section 147 invalid when based on change of opinion without fresh material

The ITAT Raipur held that while the notice u/s 143(2) was valid after the assessee e-verified their return following a s.148 notice, the reopening of ... Validity of Reopening of assessment u/s 147 without issuing a valid notice u/s. 143(2) - assessee’s claim of having purchased the subject land i.e. land situated at Talapara, Bilaspur as stock-in-trade of his business could not be accepted and treating the same as the income of the assessee u/s. 56(2)(vii)(b) - HELD THAT:- As is discernible from the “Screen shot” of the e-portal account of the assessee,, the return of income filed by the assessee on 11.06.2018 (supra) had thereafter been e-verified though after the due date i.e. on 24.10.2019. Accordingly, as the assessee had filed the return of income in compliance to notice u/s. 148 of the Act (wherein the provisions of the Act shall so far as may be apply accordingly as if such return were a return required to be furnished u/s. 139 of the Act), therefore, the A.O had validly issued the notice u/s. 143(2) of the Act, dated 05.11.2019. Our aforesaid conviction is fortified on a perusal of Section 143(2) of the Act, as per which, where a return of income has been furnished u/s. 139 of the Act, then the A.O, if considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner shall serve upon him a notice requiring him, on a date to be specified therein, either to attend the office of the A.O or to produce, or cause to be produced before him any evidence on which, he may rely in support of the return. Accordingly, after the return of income was e-verified by the assessee on 24.10.2019, the notice u/s. 143(2) of the Act which was thereafter issued by the A.O could not be held to be invalid. Against assessee. Whether concluded assessment in his case had been reopened based on a mere “change of opinion'? - As the concluded assessment of the present assessee that was originally framed by the A.O vide his order passed u/s. 143(3) of the Act, dated 23.08.2016 had been reopened by successor A.O based on the same set of facts as were there before his predecessor and were looked into and deliberated upon by him in the course of the original assessment proceedings, and not on the basis of any fresh material coming to his notice after framing of the original assessment, therefore, the same is based on a mere “change of opinion”, which as pointed out by the Ld. AR and, rightly so, as per the ratio of Kelvinator of India [2010 (1) TMI 11 - SUPREME COURT] is not permissible, thus, cannot be sustained and is liable to be quashed. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the reopening of the assessment under Section 147 of the Income-tax Act, 1961, was valid, particularly in light of the alleged 'change of opinion' by the Assessing Officer (A.O).Whether the assessment was invalid due to the alleged failure to issue a valid notice under Section 143(2) of the Act within the prescribed time.Whether the addition of Rs. 3,70,89,000 under Section 56(2)(vii)(b) of the Act was justified, considering the land was claimed to be stock-in-trade.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Reopening under Section 147Relevant legal framework and precedents: Section 147 of the Income-tax Act allows the A.O to reassess income if it has escaped assessment. However, reopening based on a mere 'change of opinion' is not permissible, as established in CIT Vs. Kelvinator of India Ltd. and Asian Paints Ltd. Vs. DCIT.Court's interpretation and reasoning: The court found that the A.O reopened the assessment based on the same facts available during the original assessment, without any new material. This constituted a 'change of opinion,' which is not a valid ground for reopening.Key evidence and findings: The original assessment had already considered the purchase of land at a value lower than the Fair Market Value (FMV), and this was explained and accepted by the A.O during the original proceedings.Application of law to facts: The court concluded that the reopening was unjustified as it was based on reappreciation of existing facts, not new information.Treatment of competing arguments: The Revenue's argument that the A.O had new reasons to believe was rejected, as no new material was presented.Conclusions: The reopening of the assessment was quashed as it was based on a 'change of opinion.'Issue 2: Validity of Notice under Section 143(2)Relevant legal framework and precedents: Section 143(2) mandates that a notice must be served to ensure the correctness of the return filed by the assessee.Court's interpretation and reasoning: The court found that the A.O issued a notice under Section 143(2) after the return was e-verified, thus validating the notice.Key evidence and findings: The return was e-verified on 24.10.2019, and the notice was issued on 05.11.2019.Application of law to facts: The court held that the notice was valid as it was issued after the return was duly verified.Treatment of competing arguments: The assessee's argument about the invalidity of the notice due to the late e-verification was dismissed.Conclusions: The notice under Section 143(2) was valid.Issue 3: Addition under Section 56(2)(vii)(b)Relevant legal framework and precedents: Section 56(2)(vii)(b) deals with the taxation of income where the stamp duty value of an immovable property exceeds the purchase consideration by more than Rs. 50,000.Court's interpretation and reasoning: The court did not delve into the merits of this issue due to the quashing of the assessment order on jurisdictional grounds.Key evidence and findings: The A.O treated the land as a capital asset, not stock-in-trade, leading to the disputed addition.Application of law to facts: The court refrained from deciding on this issue due to the quashing of the assessment.Treatment of competing arguments: The court left the arguments on this issue open for future consideration.Conclusions: The issue was left undecided due to the quashing of the assessment order.3. SIGNIFICANT HOLDINGSCrucial legal reasoning: 'The reopening of the concluded assessment of the assessee was based on the same set of facts as were available with the A.O. while framing the original assessment. To sum up, no fresh material/documents had come into the possession of the A.O. after culmination of the original assessment proceedings which would have vested with him valid jurisdiction to reopen the concluded assessment of the assessee.'Core principles established: Reopening an assessment based on a 'change of opinion' is impermissible. A valid notice under Section 143(2) must be issued after the return is duly verified.Final determinations on each issue: The reopening of the assessment was quashed due to being based on a 'change of opinion.' The notice under Section 143(2) was deemed valid. The addition under Section 56(2)(vii)(b) was not addressed due to the quashing of the assessment.In conclusion, the appeal was partly allowed, with the assessment order being quashed for want of valid jurisdiction by the A.O. The court refrained from addressing the merits of the addition under Section 56(2)(vii)(b), leaving those issues open for future consideration.